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Austerity erodes Shanghai Pilkington's profits

SHANGHAI: Shanghai Yaohua Pilkington Glass, a top blue-chip company on Shanghai's B share market, posted disappointing results on Monday and analysts said this year could be even worse.

Yaohua Pilkington, a Sino-British float glass joint venture, announced 1995 after-tax profits of 189.76 million yuan ($22.86 million), down from 250.128 million in 1994, according to international accounting standards.

Using Chinese accounting standards, after-tax profits rose 3.95 percent to 263.193 million yuan.

Analysts blamed the government's continuing austerity policy and intensifying competition for the poor results.

A spokesman for Yaohua said that, based on Chinese standards, the 1995 results were good, considering fierce competition. Many Chinese companies are able to produce high quality glass.

"We sense that this competition will intensify in the future," he said. "We will do our best to overcome this difficult situation."

The government's austerity policies hurt growth in the property and construction industries, which are Yaohua's key customers.

"The results were below our expectations, despite the fact that we were already at the bottom end of market expectations," said Calina Ip, an analyst at HG Asia in Hong Kong. "The market will be tougher in 1996, with increased production of glass by new lines and also evidence of Yaohua Pilkington adjusting their prices downward," she said.

Hoong Yik Luen, China research strategist for J.M. Sassoon & Co, said the squeeze on Yaohua's profit margins was worse than expected because of a flood of low-quality glass on the market.

"We are revising down our 1996 forecast but we do not call it a 'sell' yet," he said. "This is bad news for the B share market. Yaohua has not lived up to expectations."

Fierce domestic competition forced the company to shift more of its sales to the export market, where profit margins are thinner and transport costs higher. One analyst said 63 percent of 1995 output was exported.

But Hoong said he expected the austerity policy to ease from the middle of this year, with interest rates to be cut by one to two percentage points and higher credit quotas.-Reuter